Time is running out to halt a Brexit exodus from London

LONDON — Time is running out for the government to prolong London’s status as a global financial hub.

While talks over the terms of the UK’s exit from the European Union will last until 2019, banks are working to an earlier deadline: autumn.

Financial firms may be forced to step up Brexit contingency plans this year unless they are reassured that the UK will push for a transition deal, which would maintain the UK’s financial passport for a few years after 2019.

Banks and European regulators need at least a year, if not longer, to set up fully functioning branches and subsidiaries in Europe to maintain activities. This means that if talks stumble, or the likelihood of the UK leaving the EU without a transition deal increases, banks may be forced to move quickly on plans to boost EU offices.

This means that if talks stumble, or the likelihood of the UK leaving the EU without a transition deal increases, banks may be forced to move quickly on plans to boost EU offices.

“If you have to re-licence a branch in Europe and in that process get approval from the local central bank and begin to novate all the contracts from one branch to another, that process, given the complexity of the financial instruments, will take 12 months or 18 months,” Staley said.

“And if there’s any degree of uncertainty in terms of that two-year cliff, that implementation period has got to start in a reasonably short period of time,” he added.

May is seeking to end freedom of movement for EU citizens and pull the UK out of the single market, likely putting an end to Britain’s financial passport. The passport is a system of common financial rules that allow UK based financial firms to access customers and carry out activities across Europe. The Financial Conduct Authority (FCA) said last year that 5,500 UK companies rely on passporting rights, with a combined revenue of £9 billion.

Staley said: “In one degree the financial industry will have to start implementing structural reforms that will give certainty to continue operations beyond a two-year window and not be completely exposed.”

It’s not a simple process to transfer London investment banking activities to European office. The Single Supervisory Mechanism, the main banking supervisor for the eurozone, won’t allow “empty shell companies” to skirt around potential post-Brexit trading restrictions on UK-based firms.

“It is the ECB that grants licences in the euro area. And to be clear: we will only grant licences to well-capitalised and well-managed banks,” she said.

“We will not accept empty shell companies. Any new entity must have adequate local risk management, sufficient local staff and operational independence.”

The direction of talks, and the SSM’s regulatory stance prompted Deutsche Bank’s chief regulatory officer last month to warn that the bank may be forced to move up to 4,000 staff from the UK to Europe as a result of Brexit.

Sylvie Matherat, who joined the German lender in 2015 from the French central bank, said that client demands and pressure from regulators could combine to force almost half of Deutsche’s 9,000 UK staff to relocate to Europe.

“Then you have the local supervisors who rightly say, come on, if you have your client here, if you book your operation here, you need to have your risk management capacity here. It means another 2,000 people.”